The information imbalance in the franchising relationship: a best practice model for prior disclosure and an evaluation of China’s regulatory regime

Abstract

This dissertation examines the prior disclosure regulation of the franchise sector in order to redress the information imbalance inherent in the franchise relationship. It has two purposes: (i) to develop a Best Practice Model for prior disclosure based on advanced international disclosure regimes of regulated sectors; and (ii) to critical assess China’s disclosure regulation against the Best Practice Model and set out recommendations for reform. In recent years, franchising has become entrenched throughout the world. However, there are particular features of the franchise contract (standard form and relational aspects) and the franchising relationship (power imbalance and information imbalance) that cause problems for the typical franchise. Domestic franchise sectors have been increasingly facing the challenge of the appropriate manner of its regulation. Of the four primary regulatory strategies- registration, prior disclosure, controls on conduct within the relationship and alternative dispute resolution- prior disclosure has the most support among the more than 30 jurisdictions that subject their franchise sectors to a dedicated regulatory regime. Prior disclosure requirements address directly the information imbalance inherent in the typical franchise relationship and are widely accepted as central to good franchise regulation. This thesis critically examines the prior disclosure regulatory framework theoretically and practically. It includes a comparative analysis of disclosure requirements of regulated regimes in the context of franchising which provides the experience for development of a Best Practice Model. By benchmarking China’s disclosure regulation against the Best Practice Model, this thesis puts forward recommendations for the further refinement and efficacy of China’s disclosure regulation.